Orders for US durable goods up solid 2.6 per cent in March with strength in business investment

WASHINGTON – Orders to U.S. factories for long-lasting manufactured goods posted a solid gain for the second straight month in March. A key category that signals business investment plans increased at the fastest pace in four months.

Orders for durable goods increased 2.6 per cent in March following a 2.1 per cent rise in February, the Commerce Department reported Thursday. Those back-to-back gains followed two big declines in December and January which had raised concerns about possible weakness in manufacturing.

Demand for core capital goods, considered a good guide for business investment plans, rose 2.2 per cent in March after a 1.1 per cent drop in February. It was the best showing since a 3 per cent rise in November.

Analysts were encouraged with the widespread strength shown in the March orders increase, saying it was an indication that manufacturing was recovering after a cold winter disrupted business activity.

“The gains were spread across most sectors, from primary metals to computers,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

He and other analysts said the March report was an encouraging sign that increased factory production will lift overall economic growth in coming months.

The strength in March was widespread, led by a 4 per cent increase in demand for transportation goods. Orders for commercial aircraft advanced 8.6 per cent while demand for motor vehicles and parts rose a more modest 0.4 per cent.

Excluding transportation, orders rose a solid 2 per cent, the best showing in this category in more than a year.

Orders for primary metals such as steel rose 2 per cent while demand for heavy machinery, computers and communications equipment all showed increases.

The gains in orders for durable goods, products expected to last at least three years, were the latest sign that the economy is gaining momentum following a harsh winter.

The Institute for Supply Management, a group of purchasing managers, reported that its closely watched index of manufacturing activity grew at a slightly faster pace in March, rising to a level of 53.7, compared to 53.2 in February. Any reading above 50 indicates expansion in manufacturing.

Manufacturing activity had plunged in January as harsh snow storms shut down factories and disrupted supply shipments and then rebounded slightly in February as orders and stockpiles grew. The overall index remains below the level that prevailed in the second half of last year, when it regularly topped 56.

Last year, U.S. factories were cranking out appliances, autos and other goods at a healthy pace until harsh winter weather descended. The ISM’s index rose for six straight months until dipping slightly in December. That was followed by January’s sharp fall.

Economists believe the severe winter weather contributed to slowing overall growth to a lacklustre annual rate possible as low as 1 per cent in the January-March quarter.

But they are looking for the warmer weather to unleash pent-up demand that will kick growth in the April-June quarter to around 3 per cent. That stronger growth is expected to last for the rest of the year, lifting the economy to its best performance since the Great Recession ended in mid-2009.